The National Credit Union Administration is preparing guidelines for credit unions that sell uninsured investment products such as mutual funds.
The guidelines call on credit unions to disclose to customers that mutual funds are not covered by deposit insurance, that the funds are not guaranteed that their principal is at risk.
"It's an issue now," said NCUA staff attorney Lisa Henderson, referring to a study by the Securities and Exchange Commission that found two-thirds of people who had bought money market mutual funds at banks thought they were federally insured.. The same survey found 30% of bank mutual fund customers said they thought all mutual funds sold by banks were federally insured.
Increase in Fund Business
"There's no particular bad crisis, it's just a good time because the [mutual fund] business is picking up as more credit unions get into it," said Ms. Henderson, who helped write the policy.
D. Michael Riley, director of examination and insurance for the credit union regulator, said, "Rather than let [mutual funds] create a problem, we're going to set up guidelines for the future."
At yearend 1992, the most recent figures available, 4.1% of all credit unions offered mutual funds, said Jerry Karbon, a spokesman for the Credit Union National Association, a trade group. About 25% of-credit unions with more than $50 million in assets offered the products, he said.
The guidelines were modeled after ones issued in July by the Office of the Comptroller of the Currency, Mr. Riley said.
Four-Page Guideline
The guidelines, which are four pages long, will be sent out as a letter to the roughly 12,000 federally insured credit unions by the end of the year, Mr. Riley said.
The guidelines allow credit union employees, though not tellers, to, sell products. The credit union's management also is required to make sure that third-party sellers obey the guidelines. Examiners will have access to those records, and credit union directors must be aware of the risks involved in selling uninsured products, Mr. Riley said.
Credit unions are also prohibited from giving their names to mutual funds. In addition, there should be some separation between the deposit-taking area and nondeposit product sales, the guidelines say.
"We want it so a member can clearly tell he's not making an insured deposit," Mr. Riley said.
